Argentina’s Central Bank hiked its benchmark interest rate to 40 percent Friday to support the peso after it plunged in value the day before.
The bank had raised its key rate to 33.25 percent on Thursday but that move failed to prevent a seven-percent drop in the national currency.
The peso has lost more than 10 percent of its value over the past month.
On Friday, the dollar was selling for 21.45 pesos at exchange houses after it closed at 23.30 on Thursday. Banks, meanwhile, were selling the dollar at around 21.70 by midday Friday.
The increased interest rate “is designed to remove volatility in the exchange market and we’re convinced this will happen”, Treasurer Nicolás Dujovne said at a press conference Friday morning.
He conceded the measure reflected an underlying problem in the economy and that inflation in May will likely “be higher than what we expected”.
“It would have been worse if we folded our arms, without doing anything”, he said, in reference to the increased interest rate. “We were prepared for the movement in the dollar, which did not surprise us”.
Under fire, the Mauricio Macri government has insisted its economic policies are the right way forward for Argentina.
“Argentina will maintain the rhythm of growth that it has experienced for the last year and this will continue for many years”, Dujovne said.
“We have reduced the spending Argentina had in 2013, we have been able to unwind years of waste and reach a level of spending that we have not seen for a long time”, the Treasurer added.